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ETF Chart of the Day: Leveraged U.S. Treasury Funds

tlydon@globaltrend.com (Tom Lydon)

Heading into the final trading day of 2011, we embrace a simple theme today for the ETF Chart of The Day, that being the best performer from an absolute return standpoint for the year.

We have included all ETFs and ETNs, including leveraged and inverse investments, and LBND (PowerShares DB 3X Long 25 Year Treasury Bond ETN ) remains the best performer for the year, gaining a staggering 115.8%. [Treasury ETFs Lead the Way in 2011]

LBND delivers tracks the Deutsche Bank Long U.S. Treasury Bond Futures Index on a 3 times monthly leveraged basis, and with longer dated Treasuries (and U.S. government securities in general) soaring in 2011, LBND has performed wonderfully.

Not to say that the product is designed to be a buy-and-hold investment, as leveraged ETFs are typically designed as trading and/or hedging vehicles, but if one looks at a chart of an unleveraged ETF such as TLT (iShares Barclays 20+ Year Treasury Bond) that tracks longer dated treasuries, near the end of July of this year bonds began to take off and barely ever looked back.

Barring a few temporary setbacks along the way through the end of December, the long bond has rallied in unprecedented fashion, and is currently within reasonable distance of its high of the year.

Thus, the “one way” nature of this bond rally has contributed to the performance of LBND, as we have spoken about the nature of leveraged ETFs before and how trending markets actually help augment returns if you are positioned the right way since the leverage and compounding effects “work for you,” but in choppy markets without a trend, the leverage and compounding deteriorate returns. [How Volatility Impacts Leveraged ETFs]

LBND’s performance year to date versus say TLT is much more than 3 times the benchmark return, (115.8% versus 28.4%).

LBND’s counterpart on the short side of the equation, SBND (PowerShares DB 3X Short 25+ Year Treasury Bond ETN), unsurprisingly has lost 65.20% year to date. Both of these products debuted in June of 2010 and given the considerable interest and activity in 2011 in fixed income ETFs, they have gradually been gaining the attention of portfolio managers and institutional investors as potential strategic trading and/or hedging vehicles. [Traders Tap ETFs to Profit from Higher Treasury Yields]

PowerShares DB 3X Long 25 Year Treasury Bond ETN

For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.